LOC and interest deduction

Viewing 8 posts - 1 through 8 (of 8 total)

hoarel
Participant
@hoarel
Join Date: 2003
Post Count: 39
May 28, 2004 - 12:52 am
Hi All,
We are considering putting on a pergola for a tenant who would be happy with a $10 increase in rent a week. My question is about how to set this up.
We have the cash to pay for this, but I was wondering if I would be better off to setup a LOC on my ppor and then use the LOC to pay for the pergola. Would the interest on the LOC then be tax deductable?
Has anyone done this before or now if I could claim a tax deduction. I do realise this is a capital improvement so would only be able to depreciate the cost, but if the cost came from a LOC can I claim the interest on the LOC aswell
Thanks
Luke…
Ibuycashflow
Participant
@ibuycashflow
Join Date: 2004
Post Count: 274
May 28, 2004 - 1:00 am
Hi Luke,
Yes, both interest on the LOC for the amount of the improvements and the depreciation are deductible. Assuming of course your best option is to borrow the funds in the first place.
Cheers
Jeff
woodsman
Member
@woodsman
Join Date: 2004
Post Count: 714
May 28, 2004 - 1:16 am
Luke,
A pergola would be deemed as an improvement, so it is claimable only to the extent that depreciation laws allow. The full cost I would suspect is in excess of the low-pool value threshold (although I may be mistaken), so would not be fully deductible in the current financial year.
James
hoarel
Participant
@hoarel
Join Date: 2003
Post Count: 39
May 28, 2004 - 3:18 am
Hi Ibuycashflow,
I do have the cash to pay for the pergola fully. I thought if I could do it, it would be more wise to pay some money of my ppor (not deductable) and then redraw via a LOC and then claim the interest. The one thing I wasn’t sure of was when using money from my LOC for a capital expenditure if I could claim the interest as a deduction
Thanks for your help
yack
Member
@yack
Join Date: 2003
Post Count: 1,206
May 28, 2004 - 3:21 am
Yes – I believe you can. Thats what i do. The purpose of borrowing the money for the pergola is for income producing purposes so therefore, in my opinion, its tax deductible.
Mortgage Hunter
Participant
@mortgage-hunter
Join Date: 2003
Post Count: 3,781
May 28, 2004 - 4:16 am
I would pay it into my PPOR and redraw it for the pergola. Ensure it is shown on a split.
Or use a LOC if you prefer.
As always seek advice from a professional.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
melbear
Member
@melbear
Join Date: 2003
Post Count: 2,429
May 29, 2004 - 7:21 am
Luke, excellent advice from Simon if you have a PPOR loan. That way you would be turning some non deductible (PPOR debt) into deductible (pergola debt) expenses.
If you don’t have a PPOR loan, it’s up to you how you want to do it!
Cheers
Mel
DD
Member
@dd
Join Date: 2004
Post Count: 508
May 29, 2004 - 10:14 am
I did the same with an airconditioner for a house in Redbank plains I own, used LOC to pay for it, depreciate it nicely, claim interest and got $10.00/wk from tenant.
I also wholesale aircons now to investors witha 5 year warranty on the compressors. Any interest let me know.
DD
Don’t sweat the small stuff,and it’s all small stuff!!